The World Bank has issued a warning to the central banks of Nigeria, Ethiopia, and Uganda, urging them to exercise caution and avoid actions that could potentially conflict with their monetary policies. The international financial institution specifically highlighted several measures that should be avoided, including “monetizing the fiscal deficit, direct lending interventions, untargeted subsidy programs, and foreign exchange controls.”
This cautionary advice from the World Bank comes in response to the serious issue of inflation that monetary authorities in these countries are currently grappling with. The report points out that these challenges are particularly pronounced in nations with “underdeveloped financial systems, a sizable informal sector, and a lack of coordination between monetary and fiscal policies.”
Inflation: Central Bank Of Nigeria Raises Interest Rates To 15.5%
The World Bank’s report underscores the importance of coordinated efforts between fiscal and monetary policies to combat inflation effectively. Failure to do so could result in the de-anchoring of inflation expectations, leading to further inflation, rising interest rates, and a slowdown in economic activity.
In a comprehensive report, the World Bank delves into the short-term economic outlook for the continent, examines current development issues, and highlights specific challenges. The report identifies a range of factors contributing to inflation in 2023, including a global demand slowdown, eased supply chain disruptions, lower commodity prices, and the implementation of stricter monetary policies.
Despite a projected drop in inflation to 7.3 percent in 2023 from 9.3 percent in 2022, the report reveals that 18 countries in the region continue to grapple with double-digit inflation. This has significant implications for households, particularly those in vulnerable economic situations, as they face rising costs of living driven by increasing food and fuel prices and the depreciation of domestic currencies.
The report also expresses concern about the slow progress in some countries’ efforts to consolidate their fiscal policies. Nearly two-thirds of the countries in the region still have fiscal deficits higher than pre-pandemic levels in 2023. To address these challenges, the World Bank emphasizes the urgent need for domestic resource mobilization and efficient spending. This approach is crucial for reducing fiscal and debt sustainability risks, curbing inflation, and creating room for development expenditures.
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